Circular LISOL 1-172. Minimum liquidity requirements. Integration with letters of credit

BANCO CENTRAL DE LA REPUBLICA ARGENTINA

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COMMUNICATION "A" 2636 12/12/97

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TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 172.
Minimum liquidity requirements. Integration with letters of credit

We address you to communicate that this Institution adopted the following resolution:

"1. Incorporate, with effect from 1.1.98, as an admitted concept for the integration of minimum liquidity requirements, the following point:

"3.1.6. "Stand-by" letters of credit that at all times maintain a minimum validity period of 270 days, opened by banks abroad with at least one international rating of "A" or higher granted by one of the risk assessment agencies according to the list contained in point 2.2., Section 2., of the rules on Qualification of financial entities (T.O., Communication "A" 2521 and complementary). The use of the fund margin agreed upon by said letters of credit shall not be subject to any condition whatsoever - it must be unrestricted - and the resources must be available immediately upon simple request by the local entity without prior notice. It will be admitted that as counter-guarantee for the letters of credit opened under the aforementioned conditions and for this purpose of integration of liquidity requirements, the affected financial entity may allocate mortgage loans, pledge loans, or other documents representative of its active portfolio, up to 125% of the amount of the letters of credit. The calculation of this integration may be carried out provided that the contract adheres to the model established by the Central Bank (Section 9.) and that the original version of the document representative of the letter/s of credit corresponding to the entity, along with the relevant payment instrument, remains in custody at Deutsche Bank, New York.

It will be necessary to deduct the amount of credit lines committed to other local or foreign financial entities regardless of their nature, and the amount of existing liabilities with foreign banks subject to cancellation clauses upon simple request, within a period of 30 days.

2. Replace, with effect from 1.1.98, point 3.2. of Section 3. Integration of the rules on Minimum liquidity requirements (T.O.), with the following:

"3.2. Integration into admitted concepts will only be computable up to the following maximum limits, measured with respect to the minimum requirement of each period:
Concept Maximum computable
-in %- a) Points 3.1.1., 3.1.4. and 3.1.6.
(together) 100 b) Points 3.1.2., 3.1.3., 3.1.5. and
3.1.7. to 3.1.11 (together) 80
c) Point 3.1.5. (within the preceding margin) 10 d) Point 3.1.7. (within the 80% margin) 5 e) Points 3.1.9. and 3.1.11. (within the 80% margin) 30 When opting to use the concept provided for in point 3.1.6., it will be required that the amount of the pertinent letters of credit reaches, at minimum, twice the sum computed as integration."

3. Incorporate into the rules on Minimum liquidity requirements the following section:

"Section 9. Model of "stand by" letter of credit.
9.1. Letter of credit.
"IRREVOCABLE STAND-BY LETTER OF CREDIT N° ....
(Date)
Dear Sirs:
We hereby establish, at the request and for the account of .... (bank's name)..., in your favour, our irrevocable stand-by letter of credit N° ..... for
the aggregate amount of US$...(amount in numbers and words)..., effective immediately and expiring on the expiration date of ......
This irrevocable stand-by letter of credit is issued to guarantee the obligation assumed by ... (bank's name)....within the scope of the liquidity minimum requirements established by Communication "A" ..... issued by Banco Central de la Republica Argentina. Our obligations under this irrevocable letter of credit will be discharged by us without demand of payment or protest by making funds available to you against a sight draft drawn and signed by you, referring thereon to the number of this letter of credit, and presented on our offices located at ......, in the form of Annex "A" attached hereto. Each such draft shall be dated the date of its presentation and shall be presented to our International Trade Services Department as provided below:
Drafts presented by mail should be mailed to ......
Courier or physical deliveries should be addressed
to ....
We hereby engage with you that all drafts drawn under and in compliance with the terms of this letter of credit will be duly honored if drawn and presented for payment as indicated above on or before the expiration date. Should we fail to pay to the beneficiary the amount of this stand-by letter of credit when drawn by the beneficiary in accordance with the terms hereof, we agree to pay interest at a rate per month equal to ...% of the amount guaranteed, as from the date you give us written notice in the form set forth in Annex A hereto of your intention to draw under this stand by letter of credit, until the date of effective payment. We also agree to pay and reimburse all costs and expenses incurred by the beneficiary in connection with the enforcement of this stand-by letter of credit. This letter of credit is subject to the "Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce, Publication N° 500. This letter of credit sets forth in full our undertaking, and such undertaking shall not in any way be modified, amended, amplified or limited by any document, instrument or situation whatsoever. Very truly yours, (Authorized Signature)"

9.2. Annex to the letter of credit.
"ANNEX "A"
CERTIFICATE FOR DRAWING UNDER IRREVOCABLE
STAND-BY LETTER OF CREDIT
The undersigned hereby certifies to ....
(issuer).., with reference to the irrevocable stand-by letter of credit N° ... issued by ... (issuer)... in favour of ... (the beneficiary)..., the following:
(i) The beneficiary is making a drawing under the stand-by letter of credit with respect to the failure by ...(bank's name).. to comply with its obligation related to the minimum liquidity requirements, under the provisions set forth in Communication "A" .... of the Banco Central de la Republica Argentina. (ii) The amount of the draft accompanying the
stand-by letter of credit is US$ ....
(iii) Such amount shall be deposited by you by wire transfer in immediately available funds to the following account:
Account title:
Account number:
Reference:
Attention:
IN WITNESS WHEREOF, the beneficiary has executed and delivered this certificate as of the ... day of ...., 199.. (Beneficiary)"

4. Replace the fifth paragraph of Section 2. Calculation. of the
   rules on Minimum liquidity requirements with the following:

"When the financial entity enters into conventions or option contracts that ensure the total or partial refinancing of term obligations, for the purpose of establishing the residual term until the maturity of the obligations, the term resulting from using those facilities will be considered, for the portion of the liability covered by the convention. This criterion is applicable in cases where the convention is carried out with Backstop Fund S.A. (created by the National Government within the framework of the Program for the Development of the Capital Market agreed with the World Bank) or when the counterparty is a foreign bank that has at least one international rating of "A" or higher granted by one of the risk assessment agencies according to the list contained in point 2.2. of Section 2. of the rules on Qualification of financial entities (T.O., Communication "A" 2521 and complementary), provided that in this latter case the convention remains in custody at Deutsche Bank - New York."

At the appropriate time, we will send you the sheets that correspond to incorporate into the pertinent ordered text. We salute you attentively. BANCO CENTRAL DE LA REPUBLICA ARGENTINA Juan Carlos Isi Alfredo A. Besio Submanager of Rules Manager of Rules for for Financial Entities Financial Entities"